Scope of policy

The scope of this policy extends to FMO’s entire footprint. This includes FMO’s activities at the organizational level and new investments with respect to all products provided by FMO. The nature of the services FMO delivers can in some situations limit FMO’s level of influence. FMO will then apply this policy to the greatest extent possible.

This Policy is the foundation of our sustainability management and provides guidance to FMO’s internal processes.

This Sustainability Policy is the leading part of a broader Sustainability Policy Universe (see Annex 1 of the Policy) that also encompasses thematic and sectoral Position Statements that complement the Sustainability Policy and give further depth and content to the choices FMO makes.

Accountable body

Management Board with approval delegated to Impact and Sustainability Committee (ISCO)

Third-party standards/initiatives (if relevant)

As part of the Sustainability Policy, FMO upholds various (inter)national standards. They are listed in the policy, which is publicly available.

With respect to the management of environmental and social impact, the primary standards that FMO upholds are the IFC PS and the associated World Bank Group Environmental Health and Safety Guidelines. They cover the larger part of the ESG requirements in the OECD Guidelines on Multinational Enterprises, which also reference the UN Guiding Principles on Business and Human Rights.

Consideration to interests of key stakeholders (if relevant)

We invite stakeholders to give their views on new policies and position statements that guide our investment process and decision-making.

Availability to stakeholders (if relevant)

Sustainability Policy Universe, as well as a document describing how FMO navigates dilemmas and issues are all published on FMO’s website.

Methodology and assumptions

New investment is the aggregate commitment made to a customer in a specific reporting period by FMO and PIM Funds, and by private participants and other public participants directly mobilized by FMO. For the calculation of new investment per participant, the aggregate commitment is allocated to the participants based on their credit risk exposure to the customer.

The RI Label is an SDG Label indicating an Instrument has the ex-ante potential to materially contribute to the SDG 10 objectives. Two objectives underlie the RI Label: increase investment in LDCs (reducing inequalities between countries) and increase investment in inclusive growth (reducing inequalities within countries, focusing on gender and youth). Each of these objectives has a set of principles, definitions and criteria. The RI percentage is the share of an investment that is approved for the RI Label.

Validation by external body other than the assurance provider (if applicable)

NA

Unit

EUR million

2024

2,250

2023

1,140

Methodology and assumptions

New investment is the aggregate commitment made to a customer in a specific reporting period by FMO and PIM Funds, and by private participants and other public participants directly mobilized by FMO. For the calculation of new investments per participant, the aggregate commitment is allocated to the participants based on their credit risk exposure to the customer.

The Green Label is an SDG Label indicating an investment has the ex-ante potential to materially contribute to the SDG 13 objectives, including climate mitigation, climate adaptation and resilience, water, circular economy and pollution prevention and biodiversity. The Green percentage is the share of an Instrument that is approved for Green Label.  

Validation by external body other than the assurance provider (if applicable)

NA

Unit

EUR million

2024

1,460

2023

1,091

Target level to be achieved and unit of measurement, and clarification whether target is absolute or relative (where applicable)

By 2030, we aim to have an investment portfolio of at least €10 billion in SDG 10 by financing assets that contribute to our SDG 10 objectives.

Scope of target

SDG 10 investments in the total committed portfolio

Baseline value

€4.0 billion

Baseline year

2021

Application period

2023 – 2030

Milestones or interim targets

Annual targets are set as part of the annual business planning process.
2024 target: €5,000 million

Methodologies and assumptions

The target has been established following the intent to double FMO’s impact regarding SDG 10 compared to the baseline year 2021. In the absence of a single impact metric, we focused on doubling the size of the relevant portfolios. Setting the target involved a forecasting exercise of the portfolio and subsequent internal discussions.

Key assumptions for this target are that FMO can contribute to reducing inequalities within and between countries by steering investments towards 1) least developed countries or 2) activities that support inclusive growth. Hence, an investment can receive an ex-ante RI Label if the investment takes place in, or funds are expected to flow predominantly to LDCs (aligned with SDG 10.9) and/or if the investment is expected to contribute to inclusive business practices or targets the bottom 40 percent of the population (SDG 10.1).

Portfolio trajectories per department were forecast during the 2030 Strategy process and SDG10 targets were confirmed with investment directorates, based on past and expected performance. It should be noted that portfolio growth was forecasted using a stable EUR/USD FX rate of 1.10 through 2030. An appreciating USD has a positive effect on our portfolio results.

Target related to environmental matters is based on conclusive scientific evidence (if applicable)

NA

Stakeholder involvement with target setting

The target has been set as part of the 2030 Strategy process. Key input to setting the target was the Corporate Evaluation of our performance on reducing inequalities in the years 2015-2020. The evaluation was concluded in 2021. The target and strategic focus were discussed both formally and informally with key stakeholders during the strategy process. This included the Dutch government, being the main shareholder, and multi-stakeholder dialogues held in the course of 2021.

Changes in target

In 2024, the RI Label was updated in line with updated market standards (e.g. 2X and the updated MDB Common Principles) and other market developments. Two new sub-categories were added to the reducing within country inequality label to align with the new 2x standards and to account for access to food as a basic goods and services for low-income populations.

Performance

There was a 42 percent increase in 2024 compared to 2023, to €6.1 billion. This means that the target of €5 billion that was set for 2024 was reached. For more information on key trends and drivers, refer to the sub-chapter 'Performance against our strategy', 'Sector performance'.

Target level to be achieved and unit of measurement, and clarification whether target is absolute or relative (where applicable)

By 2030, we aim to have an investment portfolio of at least €10 billion in SDG 13 by financing assets that contribute to our SDG 13 objectives

Scope of target

SDG 13 investments in the total committed portfolio

Baseline value

€4.1 billion

Baseline year

2021

Application period

2023 – 2030

Milestones or interim targets

Annual targets are set as part of the annual business planning process.
2024 target: €5,4 million

Methodologies and assumptions

The target has been established following the intent to double FMO’s impact regarding SDG 13 compared to the baseline year 2021. In the absence of a single impact metric, we focused on doubling the size of the relevant portfolios. Setting the target involved a forecasting exercise of the portfolio and subsequent internal discussions.

The Green Label is applied ex-ante to investments that are identified to contribute to potential positive impact on climate.

Portfolio trajectories per department were forecast during the 2030 Strategy process and SDG10 targets were confirmed with investment directorates, based on past and expected performance. It should be noted that portfolio growth was forecasted using a stable EUR/USD FX rate of 1.10 through 2030. An appreciating USD has a positive effect on our portfolio results.

Target related to environmental matters is based on conclusive scientific evidence (if applicable)

The Green Label methodology is based on and largely aligned with the Multilateral Development Banks (MDB) common principles on climate finance tracking. This set of principles is not intended to be scientifically evidenced per se, but evidence (such as certification of agricultural products or buildings) is required to support that these investments meet the principles and definition as set out in FMO’s Green Label methodology.

Stakeholder involvement with target setting

The target has been set as part of the 2030 Strategy which has been discussed both formally and informally with key stakeholders during drafting, including the Dutch government as key stakeholder and shareholder.

Changes in target

The Green Label methodology was updated in 2024 in line with MDB Common Principles of Climate Mitigation Finance Tracking of October 2021 and the MDB Common Principles of Climate Adaptation Finance Tracking of 2022 and external market standards. Green Label objectives have also been revised splitting the 'other footprint reduction' objective into the objectives biodiversity, water security, circular economy and pollution prevention.

Performance

There was a 24 percent increase in 2024 compared to 2023, to €5.9 billion. This means that the target of €5.4 billion that was set for 2024 was reached. For more information on key trends and drivers, refer to the sub-chapter 'Performance against our strategy', 'Sector performance'.

Methodology and assumptions

Number of customers for which subpar performance has been identified (denoted by 'n').

E&S performance tracking is conducted for all high E&S risk customers, to determine their adherence to the IFC PS. The performance tracker considers all applicable IFC PS criteria per customer and allows these to be scored to assess the potential negative impacts and performance of the customer to mitigate these.

For each high E&S risk customer, the following is determined:

1.       The customers’ risk exposure to each criterion (1 – Low | 2 – Medium | 3 – High), and
2.       The customers’ performance score against each PS criterion (1 – Exemplary | 2 – Good | 3 – Fair | 4 – Caution | 5 Unacceptable).

The combination of these elements leads to a 7-letter scale E&S risk rating (AAA, AA, BBB, BB, CCC, CC, D) for each applicable criterion. Ratings BB/BBB/AA/AAA represent adequate customer E&S risk management per criterion, whilst CCC/CC/D are deemed to be inadequate.

The lowest rating that the customer has achieved across all IFC PS criteria is used as the overall customer ESG performance rating. Performance is monitored over the lifetime of the investment.

Validation by external body other than the assurance provider (if applicable)

NA

Unit

Number

2024

54

E&S performance gaps 2024

Description

Our engagement

ESRS topic

Willingness and commitment (PS1) (n=7)

Resistance to engage on E&S issues can stem from over-reliance on DFIs to drive ESG work streams. Commitment can waver due to financial, operational and contextual difficulties. Wavering commitment can have tangible implications on human rights and the environment, for example through delays in implementing management plans or community benefits, or in conducting specialized studies.

We use contractual leverage on specific E&S items, raise issues with customers’ top management and exert influence on their boards, e.g. to push for the improvement of organizational culture.

-

Environmental and social governance and budget (PS1) (n=9)

The customer’s leadership is not fully aware of and involved with E&S performance management, and/or has not allocated sufficient budget, resources, or time.
Governance issues can result in poor protection of workers’ rights, a range of risks to communities, as well as damage to the environment.

We use contractual leverage and escalate the issue to top management. We may offer capacity building and advice on integrating E&S costs into financial planning and monitor frequently.

-

Identification and assessment of risks and impacts (PS1) (n=8)

Weak (initial and ongoing) identification and mitigation of risks. This can adversely impact human rights.

We provide customers with continuous engagement with our ESG staff and capacity building. If needed, we exert formal pressure e.g. through withholding additional financing or triggering default.

-

Environmental and social management system (PS1) (n=13)

Since the assessment and management of E&S risks and impacts is part of a larger set of processes that the customer uses to manage its projects, the customer needs to deploy an environmental and social management system (ESMS) to warehouse and utilize such processes. A weak system hampers the ability to identify issues or risks, and through that to improve E&S performance, and so can lead to adverse economic, financial, social, and environmental impacts.

We support customers in the development and improvement of an ESMS.

-

Organizational capacity and competency (PS1) (n=10)

E&S teams can be too small, change often, continue to perform poorly, or lack qualified staff. This is an issue in countries where environmental legislation is developing, and/or state human rights policy and practice are weak.

We use contractual leverage, offer capacity building and look for competent staff in our network.

-

Stakeholder engagement, external communication, grievance mechanisms (PS1) (n=16)

Trust and communication between FMO’s customer and its stakeholders are eroding or have broken down. Ineffective channels of communication play an important part here, particularly when grievances are insufficiently captured or redressed. Poor performance in this area can infringe on the freedom of opinion and expression, and even result in inhuman treatment, retaliation, and risk to lives.

We intensify our customer engagement, offer to connect customers to experts, mediate or provide capacity building.

S3 Affected communities

Voluntary land rights transfer (PS1) (n=2)

Customer needs to demonstrate that the buyer and the seller were both willing to transfer the land. Involuntary land transfer can be masked as voluntary, which can weaken community cohesion, cause tension between company and community and affect people’s livelihoods.

We engage with our customers to help them establish a land acquisition process that shows both the buyer and seller are willingly transferring the land.

S3 Affected communities

Working conditions and management of workers relationship (incl. third party workers)
(PS2) (n=14)

Project workers working in substandard conditions, unaware of their rights or without access to grievance mechanisms. This can infringe on labor rights.

We discuss gaps with the customer, enable capacity building and set conditions, e.g. by making disbursements conditional on improvement.

S2 Workers in the value chain

Occupational health and safety (PS2) (n=10)

Gaps in ensuring safe and healthy working conditions, possibly leading to serious injuries and fatalities. This could infringe upon the right to health and safety in the workplace, and the right to life.

We discuss gaps with the customer, enable capacity building and set conditions, e.g. by making disbursements conditional on improvement.

S2 Workers in the value chain

Supply chain working conditions (PS2) (n=3)

When the customer does not monitor its primary supply chain, risks or incidents affecting vulnerable groups are not adequately addressed.

We require customers with supply chains susceptible to high human rights or environmental risks to conduct a supply chain risk assessment. In some cases, they also need to develop a leverage plan and/or action plan to mitigate those risks.

S2 Workers in the value chain

Resource efficiency and pollution prevention (PS3) (n=10)

Projects reduce the availability of water in arid regions or pollution prevention measures are inefficient. This can infringe upon the right to life, the rights of the child and the right to live in a safe, clean, and healthy environment.

We discuss gaps with the customer, enable capacity building and set conditions, e.g. by making disbursements conditional on improvement.

-

Community health, safety and security (PS4) (n=9)

Potential negative impacts to local communities are poorly managed, especially when security forces are mandated to protect personnel and assets. The increasing fragility of political environments across the geographies we work in makes this a complex area.

We discuss gaps with the customer, enable capacity building and set conditions, e.g. by making disbursements conditional on improvement. FMO can require a root cause analysis and corrective measures or redress.

S3 Affected communities

Land acquisition and involuntary resettlement (PS5) (n=9)

When resettlement and livelihood restoration plans are poorly managed or insufficiently recognize vulnerable groups and/or have ineffective grievance mechanisms. This can impoverish people and infringe on their right to an adequate standard of living, notably the right to food and adequate housing.

We find an expert to conduct gap analyses and implement recommendations. In the event of an early exit, FMO seeks to provide remedy to those impacted.

S3 Affected communities

Biodiversity and living natural resources (PS6) (n=9)

Biodiversity potential negative impacts have not been modeled well enough or monitoring and mitigation are insufficient, or new findings are missed or ignored. This reduces biodiversity and access to forest products, thereby infringing on the right to food and/or an adequate standard of living.

We intensify customer monitoring, engage a biodiversity expert and use our leverage to improve the situation.

E4 Biodiversity and ecosystems

Indigenous Peoples (PS7) (n=3)

Community engagement processes do not meet FPIC requirement and/or do not allow for sufficient participation of Indigenous Peoples. In some cases, we recognize challenging operating conditions where risks to these communities are difficult to control. This may lead to the infringement of their right to food, traditions and sacred sites.

FMO encourages customers to meet FPIC standards, share benefits with communities, and include indigenous groups in livelihood restoration. We may intensify monitoring of contextual risk factors.

S3 Affected communities

Cultural heritage (PS8) (n=3)

Failure to protect cultural heritage. This can infringe on the rights of people to benefit from their and other people’s cultural heritage.

We use our leverage to improve the situation, looking at past and future risks.

S3 Affected communities

Financial intermediaries: financial institutions and fund managers (n=22)

Substandard system for identifying and managing E&S potential negative impacts of financed activities. Processes and procedures are unclear, E&S management responsibilities are insufficiently defined and/or capabilities are lacking, or inadequate E&S due diligence and monitoring is performed. This can be compounded by lack of exposure to and experience in E&S risks management by the financial sector and the lack of a level-playing field. This can lead to infringements of all types of human rights as referenced before.

We provide expertise and funding for the ESMS or sit on E&S risk management committees. We negotiate improvement plans and, in some cases, initiate or contribute to sector initiatives.

-

Target level to be achieved and unit of measurement, and clarification whether target is absolute or relative (where applicable)

At least 90 percent of the ESG risks in our target list are managed at an adequate level by our customers

Scope of target

High E&S-risk customers and customers with a corporate governance officer in the deal. By consolidating customers within the same corporate group or group of companies, and excluding those in B Loans* or contracted in 2024, we created a target list of 258 customers.

Baseline value

90%

Baseline year

2023

Application period

2024-2030

Milestones or interim targets

Annual targets are set as part of the annual business planning process.
2024 target: 90%

Methodologies and assumptions

E&S performance tracking is conducted for all high E&S risk customers, to determine their adherence to the IFC PS. The performance tracker considers all applicable IFC PS criteria per customer and allows these to be scored to assess the potential negative impacts and performance of the customer to mitigate these.
For each high E&S risk customer, the following is determined:

1. The customers’ risk exposure to each criterion (1 – Low | 2 – Medium | 3 – High), and
2. The customers’ performance score against each PS criterion ((1 – Exemplary | 2 – Good | 3 – Fair | 4 – Caution | 5 Unacceptable).

The combination of these elements leads to a 7-letter scale E&S risk rating (AAA, AA, BBB, BB, CCC, CC, D) for each applicable criterion. Ratings BB/BBB/AA/AAA represent adequate customer E&S risk management per criterion, whilst CCC/CC/D are deemed to be inadequate. The target is calculated as the share of adequate risks amongst all risks assessed in the target list customers (see scope for target list).

Target related to environmental matters is based on conclusive scientific evidence (if applicable)

NA

Stakeholder involvement with target setting

The target has been set as part of the 2030 Strategy which has been discussed both formally and informally with key stakeholders during drafting, including the Dutch government being the key stakeholder and shareholder.

Changes in target

Target remains the same as in 2023 except the target list is redefined every year as described in the methodology.

Performance

94%

*FMO participates in 'B-loans', contractual arrangements where it has a sub-participation where another DFI/MDB manages the customer relationship. In these cases, FMO does not have a direct business relationship with the end recipient. In 2023, it was decided that, while FMO will continue to monitor B-loan performance, the results would not be included in our ESG target.